Late last week a federal judge struck down the Department of Labor’s (DOL) rule increasing the salary threshold for exempt employees, which was set to increase for the second time on January 1, 2025. Further, the judge also overturned the first increase under this rule that took effect July 1. Accordingly, with this new ruling, it is unlikely that the expected salary increase scheduled for January 1 will take effect, at least for now. The judge in this decision stated that the DOL exceeded its authority when making this rule, citing a recent decision by the Supreme Court of the United States which makes it easier for courts to overturn rules made by agencies they believe are overreaching.
As you may recall, on July 1st, the DOL’s Final Rule regarding “white collar” salary exemptions from overtime requirements took effect. Under the DOL’s new Final Rule, to be exempt from overtime, an employee needed to make at least $844/week ($43,888/year). This amount was set to increase to $1,128/week ($58,658/year) beginning on January 1, 2025. For now, that threshold will drop to what it was before July 1, 2024 and employees will need to make at least $684/wk ($35,568/year) to meet the salary requirements to be an exempt employee. As a reminder, Washington already has a higher threshold than what is required under the FLSA and this ruling does not impact that.
What does this mean for you?
Although the DOL will likely appeal this decision, it is unlikely that any appeal would be heard by January 1, 2025. It is also unlikely that the incoming Trump Administration will prioritize this, meaning for now, employers will need to consider different options moving ahead.
If you have not communicated the increase that was scheduled to take effect January 1, you may want to hold off on any such communication until this issue is resolved. It may be wise to continue to prepare internally in case we get a surprise hearing of an appeal before January 1.
If you have communicated to employees that they may be scheduled for an increase on January 1 due to a change in the law, then you will need to evaluate if you want to follow through with the increase or carefully communicate that the law has been challenged and you are waiting to get a final resolution before making such adjustments. Clearly, each of these options must be carefully considered as each has its own benefits and consequences.
Now, what to do if you adjusted wages in July to comply with the final rule? As mentioned above, the judge struck down both the upcoming increase and the increase that already took effect. This means that technically an employer could reduce wages (subject to state law limitations) to the threshold that was in place previously at $684/wk. This is generally not recommended for a number of reasons. First, negative impact on employees that benefited from the July adjustment would be significant and likely cause great distress and turmoil. Second, there is also a chance that the judge’s decision could be overturned in appeal if and when that appeal takes place. Finally, such a retroactive change may also significantly impact your pay structure and pay equity in your organization.
Cascade will continue to monitor this issue. If you have any questions, please do not hesitate to reach out to us. We’re here for you!